In the American Recovery and Reinvestment Act of 2009 – also known as “The Stimulus Bill” – $787 billion of federal funds were appropriated to boost the U.S. economy out of the Great Recession. Included in that total was $8 billion for the development of high-speed rail (HSR) in the United States. While the U.S. freight rail system is arguably the best in the world, our passenger rail system is anything but that. American transportation culture is rooted in the individual transportation mode, horseback and later, automobiles.

Our ability to afford individual transportation has driven that experience. The rise of the auto industry and cheap oil in the early days drove it further. Later, the speed and charm of airlines drove out train travel as the preferred means of long distance travel while the interstate highway system connected the country coast-to-coast. Passenger train travel sunk further. Now the roads are crowded, fuel is very expensive, air travel is a hassle and the developed countries of Europe and Asia have developed safe, effective, modern, fast and on-time trains. So what are we going to do with $8 billion? Other than getting things started, probably not too much and even with that we have governors in Florida, Wisconsin and Ohio rejecting the initiative as being wasteful government spending.

A more thoughtful bi-partisan group in Congress, however, is emerging and interested in going forward with the plan to upgrade U.S. passenger rail and funding it in a public-private partnership. This isn’t a new idea. In fact, most U.S. transportation has been built with private funds and public support.

Waterways and Roads

The earliest forms of transportation in the United States involved trails, waterways and roads. Trails used by the Indians later developed into roads. The Wilderness Road running from Virginia to Kentucky and Ohio, one such trail-to-road, eventually became a toll road. In exchange for materials and labor to maintain the road, contractors were allowed to lease sections and erect gates or turnpikes to collect tolls.

Long distance travelers used water routes during the colonial period and into the 19th century. Canals greatly reduced the cost and time of shipping goods. The Erie Canal, completed in 1825, opened the Midwest to sources of commerce in the east, and its success spurred the development of other canals such as the Chesapeake and Ohio Canal.

The Erie Canal was funded by $7 million in bonds issued by the state of New York without federal assistance.

Funds to build canals were generated by a variety of methods besides government funding, including a lottery held in 1826 for the construction of the Washington County Canal in Rhode Island.

Canals, rivers and turnpikes often charged tolls. The cost depended on either the type of vehicle or the commodity being transported, or distance traveled and tonnage.

The Cumberland Road was constructed by the federal government in the early 19th century. The Cumberland Road – later called the National Road because of its federal funding – became one of the main roads to the west, and it provided an efficient way to transport goods and mail. The development of efficient roadways was promoted by state legislatures for their expanding populations. According to the Encyclopedia of the New American Nation, Pennsylvania authorized the creation of the Philadelphia and Lancaster Turnpike Co., which built the first toll road in 1794.

The Rise of Railroads

The earliest railroads in the United States were essentially carts on tracks used by miners to haul coal and ore from the mine to a waterway.

As rail technology improved, entrepreneurs found that state governments were unwilling to fund the building of railroads that carried both freight and passengers, so investors were sought from the private sector. The Baltimore and Ohio Railroad begun in 1828 was built with private investment and was shown to be a viable alternative to canals and turnpikes.

In 1850, Congress approved a federal grant of public land to Illinois, Mississippi and Alabama for railroad construction. This grant became the main source of capital for the Illinois Central and other railroads. Other federal grants followed in the 1850s that gave out close to 18 million acres.

It was local sources of capital, farmers and businesspeople along the route, which financed earlier railroads. But as costs of new railroads increased, new capital had to be found.

In the 1850s, railroad finance came to rely on bond issues marketed in the eastern cities of the United States and abroad in Europe. By 1859 American Railroad corporations had floated bonds worth more than $1.1 billion – $700 million of it from the previous decade alone.

Others describe financing sources as “mixed enterprises receiving up to half their capital from state and local governments and raising the rest with bonds sold to individual investors.” New York Central was the only line linking the Midwest and East which required no government assistance.

Mass Transportation

In the colonial era, sail-powered ferryboats were used in Manhattan to transport passengers. In 1827, an entrepreneur named Abraham Brower introduced his horse-drawn carriage service in New York.

Horse-drawn rail cars were introduced in 1832 by the New York and Harlem Railroad Company, and this mode of transportation replaced horse-drawn carriages as more quiet and comfortable. Around 1870, cable-powered streetcars were introduced, providing faster travel.

Cities began switching to electrified systems in the 1880s, and these streetcars became the most popular form of transportation for many years. The financing structure varied by city, with some being privately owned, investor-financed transit property that operated under franchise rights granted by its home city.

In other cities, the electrification of streetcar service was carried out by the same companies that operated horse cars, while new companies that operated under new franchise agreements financed electrification in other cities. Real estate syndicates also financed streetcar lines in some cases in order to facilitate the development of suburban real estate.

Early Commuter Rail

The first rapid transit systems consisted of elevated rails as opposed to subways. They were cheaper to build than subways and did not require government funding. By 1880, New York City had a large elevated railway network, and Brooklyn (1885) and Chicago (1892) followed.

Corporate ownership of elevated rails replaced entrepreneurship as seen in the days of horse-drawn carriages and horse-drawn railways due to the increased capital and operating costs. Monopolizing elevated service in New York were the Manhattan Elevated Railway (1880) and the Brooklyn Rapid Transit Company (1896).

Subways were so much more expensive to construct than earlier forms of mass transit that a combination of public and private investment was needed. According to the Dictionary of American History, the early subway was the first form of mass transit that relied significantly on public funding.

New York’s subway system opened in 1904, seven years after Boston’s. Commercial interests wanted to develop the northern part of Manhattan and the Bronx and led the way, followed by various public and private arrangements.

As in Boston, New York’s first subway was financed and built by a public agency, the Board of Rapid Transit Railroad Commissioners, while a private company, the Interborough Rapid Transit Co. (IRT), operated it.

In 1913, a second subway project known as the dual contract system 

was authorized. These new lines were built by the IRT and by a second company, Brooklyn-Manhattan Transit Corporation (BMT).

Streetcars to Subways

Between 1932 and 1940, a third subway network, the Independent Subway System (IND), opened. Unlike the IRT and BMT, the IND was publicly owned and operated. It was designed to compete with the two private companies and induce more favorable terms of contract from them.

Most large cities were indifferent to converting from a streetcar system to subways due to the enormity of the required public investment.

In the 1920s and 1930s, the private transit industry fell apart due to a number of factors, including post-World War I inflation, ineffective management and public policy favoring automobiles over railways.

Once the  1950s arrived, the public sector owned and operated nearly all transit systems due to the high cost of maintenance, declining ridership and poor service.

It was in 1964, under the belief that urban planning should occur in a regional context unrestricted by municipal boundaries and to a concern that metropolitan areas had become overly dependent on automobiles,” that the federal government entered into local mass transit. The Urban Mass Transportation Act of 1964 defined mass transit as a national priority for the first time and initiated federal funding of rail construction projects. As a result, since the 1970s, the Bay Area Rapid Transit District (BART) and subways in Washington, D.C.; Atlanta; Baltimore; Buffalo, N.Y.; Pittsburgh; and Los Angeles have been constructed.

Modern Airports

Commercial airports in the United States are generally operated by the public sector. 

The government entity controlling the airport may be a city, county, state or a specially created body.

In the early days of airports, however, the private sector controlled their operations. Following World War I, the U.S. Post Office and the military became the first “customers” of airports as they approached local civic leaders on the subject of building such facilities. Due to a lack of enabling legislation and local circumstances, private interests took the lead in early airport construction initiatives.

The shift from private to public ownership occurred over time as a number of factors came together to favor public ownership of airports. As aircraft technologies advanced, so did the complexity of improvements, which brought higher expenses. In order to guarantee the needed improvements were made and still make a profit, public ownership and financing became necessary. Finally, the Works Projects Administration, a major source of federal funding for airport construction in the 1930s, required that any airport receiving federal aid had to be publicly owned.

The federal government does not own and operate any civilian airports in the United States.

An airport’s revenue is generated by two kinds of activities: regulated and non-regulated activities. Examples of revenue from regulated activities may include:

• Passenger facility charges added onto a passenger’s ticket price
• Aircraft parking charges
• Take-off and landing charges
• Charges for time spent using passenger loading bridges
• Support services, such as fueling and ground handling
• Cargo and freight charges for the processing of air cargo

Revenue from non-regulated activities may be generated by:

• Retail establishments, such as duty-free shops and other commercial retail stores
• Food and beverages, from rental and revenue-sharing agreements with the establishments providing such items
• Real estate, from rental and sales of real estate near or in the airport’s respective territory.

Non-aviation services offered by the average airport account for more than half of the airport’s total revenue, with London’s Heathrow Airport having a significantly higher percentage.

The Next Step

Virtually all modern transportation in the United States got started and is maintained with public and private investment. User charges, gasoline and airport taxes and facilities fees comprise part of the private finance component. America should look to its history of private investment and user charges to find the next phase of transportation – HSR.

The majority of the nation’s population is largely supportive of the development of HSR but policy makers and industry leaders must address the obstacle of how to fund one of America’s most important infrastructure projects. With the continuing economic and political climate of reducing public spending and the challenges in attempting to balance the budget, the future of HSR development will heavily depend upon private sector investment.

Beyond Federal Aid

Even though there has been a renewed commitment for federal investment from the Obama administration, more capital is needed to ensure a successful project that meets the expectations of consumers and operators in a safe, efficient, and profitable manner.

Public-private partnerships are necessary to carry out this important national program and global experience shows that they can be successful.

Through establishing creative public-private partnerships, governments can tap into the billions that are currently available for investment in such projects from private financial institutions on Wall Street, in pension funds and in the banking sector.

Sanford M. Stein is a partner in law firm Quarles & Brady’s Environmental, Government Relations and China Law Practice Groups.

He can be reached at 312-715-5162 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it. .